According to this source, these sales “provide lenders with the liquidity to fund more mortgages, and until 2006, the mortgage-backed securities (MBS) sold by were considered solid investments.” Unfortunately, however, not all borrowers whose loans have been purchased by Fannie Mae are able to repay their mortgages in a timely manner, and many end up defaulting at some point.
After these mortgages are acquired, Fannie Mae sells them as securities in the bond market.
The Federal National Mortgage Association (FNMA), also known as Fannie Mae, is a government sponsored corporation founded in 1938 whose primary purpose, according to this source, is “to expand the secondary mortgage market by securitizing mortgages in the form of mortgage-backed securities, allowing lenders to reinvest their assets into more lending and in effect increasing the number of lenders in the mortgage market by reducing the reliance on locally based savings and loan associations.” In short, Fannie Mae purchases mortgage loans from primary lenders like Bank of America and Wells Fargo, among several others.
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